Banking on the cheap

If you have free checking, take a closer look at your statement. You might discover that your account is actually costing you money.

Amy Leap

If you have free checking, take a closer look at your statement. You might discover that your account is actually costing you money.

The fallout of the Great Recession as well as new legal restrictions on service fees that can be passed on to customers have forced these financial institutions to get creative.

Many have stopped offering free checking, hiked up fees and added entirely new charges.

The result?

Last year, consumers paid a whopping $34 billion in checking fees. Nearly 30 percent of consumers admitted to overdrawing their accounts during a two-year period, and 10 percent said they had at least four overdrafts during the two years, according to Raddon Financial Group, which tracks banking behaviors.

Even with more people moving to online banking, the costs have not dropped.

Maintaining a checking account jumped to an average of $12.08 per year, up from $11.28, and the cost of opening an account has also gotten more expensive. The average deposit needed to open an account rose to $409 from $392 in the last year, according to a mid-year survey by moneyrate.com. Plus, the average cost of overdraft fees and ATM withdrawals increased in the last six months.

At one time, many U.S. banks offered a checking account with no minimum balance requirement and no monthly fee — the standard definition of a free account. Some even offered the occasional free toaster for new clients.

In 2012, only 39 percent of banks offered free checking, and some of those attached strings such as minimum balances, according to moneyrate.com.

People should check the bank's fee schedule — online or at a branch — and crunch the numbers for a typical month before opening an account at any bank, said Erin Baehr, a financial adviser with Baehr Family Financial in Stroudsburg.

"It is important to note how often you might break the bank's rules and end up paying a monthly fee — see if it's worth it," she said.

"You need to think about what you will use the account for and what you want in the way of bank services," said Diana Scavone, senior vice president of PNC Bank's tricounty regional area, which includes Pennsylvania.

The best way to understand just what you are getting in return for depositing your money in a particular bank is to go into the bank and talk to a customer service representative. "Listen to what the bank has to offer you as a customer and then go from there," Scavone said.

If the bank offers free checking, a better choice might be an account with a monthly minimum, Baehr said.

"As long as the balance doesn't drop below the required minimum, the account holder is entitled to a discount on other bank products, such as a credit line," Baehr said.

Some banks offer specialized free accounts. The account holder doesn't have to keep a minimum balance, but monthly limits on checks and transactions at non-bank ATMs might be a requirement, Baehr said.

If you know you won't exceed the limits, Scavone said, "it can be a good choice."

PNC, for example, offers virtual wallet accounts for adults and students, and both are free accounts if you don't go over the limits on check writing and ATM withdrawals.

Some checking accounts offer interest.

"Believe it or not, some accounts do pay a decent rate of interest. But, again, you may have to play by certain rules, such as using your debit card so many times per month or having direct deposit," Baehr said.

"Although none of the local community-based banks pay more than 2 percent on a certain portion of your balance, if you want to find a local community-based bank that does, go to kasasa.com to find a bank servicing Pennsylvania which allows distance banking, including online banking, mail deposits and ATM fee refunds," Baehr said.

Using non-bank ATMs can become costly, so, if you travel out of the area often, you might want to find a bank with branches where you travel, or one that reimburses ATM fees, Baehr said.

Also, decline overdraft protection. If you have already signed up, you can contact your bank to opt out. Your debit card will be declined if you exceed your balance, but you won't have an overdraft fee.

"When you need cash, use the store's cash feature on debit purchases. Keep a cushion in your account and pretend it isn't there, so you're less likely to have an overdraft," Baehr said.

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